Category in the Tank

This was originally written in early January but I decided not to post due to the amount of sensitive knowledge I had at that time. Here is the original transcript.

A little over a month ago, I wrote a blog about a highly respected e-Sourcing vendor meeting an unfortunate demise. Since I have now run into this information from 4 different sources including industry veterans and various large corporations, I have decided to make the official unveiling on E-Sourcing Forum. The winner is…MINDFLOW.

This is the same company that has been routinely touted as a leader and “visionary” according to numerous articles and expert analysis such as the Gartner Magic Quadrant.

I like the Mindflow guys, they seemed very knowledgeable and had some interesting functionality but I always had trouble pinpointing who their paying customers were. This micro-information is really a testament to a larger picture – Does Venture Capital equate to business model success? Obviously not always, if a company widely considered a leader of an industry cannot sustain its own operations after years of accolades.

At least $10 million VC dollars and unknown negative cash flow from revenue was spent to get to this point and now assets are being acquired for pennies on the dollar. This is, of course, is no surprise when one remembers classic flame-outs such as Webvan or Those were bad ideas, though. Mindflow had well respected technology and boasted high profile clients, so where did the money go? How can a business not succeed with everything set up in its favor? Was Sourcing Optimization really so pioneering and bleeding edge that there was no sufficient revenue?

Here is the application of knowledge…make sure when evaluating potential e-Sourcing vendors that they can execute on a business plan and have a way to make money and stay in business (ironic for auction companies, eh?). What is the purpose of investment capital? For the receiver, it is to fund extra resources to make the model successful. For the investor, it is to make money. There is no other outcome. If investors get tired of waiting, they will pull the plug and cut bait. If the business is starting to hum, they will liquidate their ownership to capture the profit. Its a fools paradise to think that the customers will always benefit when the exit strategy is ultimately achieved, however, sometimes it does make sense.

A Mindflow acquisition will be completed and released soon (no longer a real secret). Time will tell if the new owner will be able to execute on the original plans that Mindflow could not. Sourcing is difficult enough to support correctly and when you add in the enormous complexities of Optimization and vertical expertise…get ready for a potential grease fire, no pun intended. Even if the company does have expertise, mergers are never easy and take quite a while to effectively integrate, if they ever do, especially in a niche that is still considered a few years ahead of its time.

Still quiet

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